201Lec08 - 201Lec08.PPT Receivables Am o un ts d ue fro m...

201Lec08.PPT
1
Receivables...
Receivables...
Am o unts  due  fro m  individuals  and o the r c o m panie s  that are
e xpe c te d to  be  c o lle c te d in c as h.
Trade Receivables are  o we d by
c us to m e rs  that re s ult fro m  the
s ale  o f g o o ds  and s e rvic e s . A/R
are  no t s uppo rte d by a fo rm al
do c um e nt.
Accounts
Accounts
Receivable
Receivable
Accounts
Accounts
Receivable
Receivable
Notes
Notes
Receivable
Receivable
Notes
Notes
Receivable
Receivable
“Nontrade” (inte re s t,
lo ans  to  e m plo ye e s  o r
o ffic e rs , inc o m e  tax
re funds , e tc ).
Other
Other
Receivables
Receivables
Other
Other
Receivables
Receivables

Balance sheet:
What amount should be used?
Income statement:
Whe n s ho uld bad de bt e xpe ns e  be  re c o rde d?
Example: Assume Chuck Co. has:
•
$1,000,000 of sales in 2011, its first year.
•
All are on credit, terms net 90 days.
•
Gross profit is 40%, operating expenses are $30,000.
Now assume that half of all A/R are uncollectible due
to poor credit screening and customer bankruptcies.
Example: Assume Chuck Co. has:
•
$1,000,000 of sales in 2011, its first year.
•
All are on credit, terms net 90 days.
•
Gross profit is 40%, operating expenses are $30,000.
Now assume that half of all A/R are uncollectible due
to poor credit screening and customer bankruptcies.
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Issues regarding receivables addressed by GAAP:
Issues regarding receivables addressed by GAAP:
Issues regarding receivables addressed by GAAP:
Issues regarding receivables addressed by GAAP:

Direct Method Allowance Method
A/R 1,000,000 A/R
1,000,000 - uncollectible -
500,000
Net realizable 500,000
----------------------------------------------------------------------------
Sales 1,000,000 Sales 1,000,000
CGS -600,000 CGS -600,000
Gross profit 400,000 Gross profit 400,000
- Operating exp - 30,000 - Operating exp - 30,000
- Bad debt exp - 500,000
Net income 370,000 Net loss -130,000
Options
Options
for 2011 Balance Sheet and Income Statement:
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All re c e ivable s  s ho uld be  re po rte d the ir . . .
Realizable Value
This  is  the  ne t am o unt that the  c o m pany c an
reasonably expect to collect in cash .
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GAAP Required Balance Sheet Presentation:
GAAP Required Balance Sheet Presentation:
GAAP Required Balance Sheet Presentation:
GAAP Required Balance Sheet Presentation:

Companies don’t know which or when
specific receivables will be bad, so . . . .